China hog market analysis: Weight-reduction slaughter dominates in China on oversupply

According to Mysteel's survey, China's live hog market has been following the strategy of reducing slaughter weight, which is likely to persist until April with oversupply looming on the market.

In detail, key farming enterprises have continued to increase the volume of small-weight hogs coming to market, while other large-scale enterprises in the industry have also ramped up the supply of small-weight hogs. In this case, some regions, the prices of 105 kg hogs have already dropped to a low of Yuan 10/kg.

Furthermore, Mysteel's research further indicated that the farming enterprises will likely continue to implement weight-reduction slaughter operations after the Chinese New Year. This trend will persist throughout the short to medium term, driving the phased movements of hog prices.

I. Pre-Holiday Market: Pressure from Weight Reduction for Slaughter Keeps Hog Prices Below Yuan 12 /kg.

Data from key monitored enterprises shows that from January 21 to February 10, the weight of slaughtered hogs has been constantly reducing. During this period, the proportion of hogs in the 100-120 kg weight range remained between 40% and 50% most of the time, highlighting the determination of enterprises to reduce slaughter weights.

While the total slaughter volume peaked on February 4, the hog prices hit a near-term low. This clearly reflects the direct pressure on hog prices caused by the increased supply from weight-reduction slaughter.

The weight-reduction slaughter behavior of farming enterprises is driven by a combination of causes, including risk control, policy implementation, and supply-demand adjustment.

(I) Proactive Weight Reduction: Seizing Opportunities and Avoiding Future Risks

First, as the peak period for Chinese New Year stockpiling approaches, farming enterprises have chosen to sell a large volume of small-weight hogs to accelerate capital recovery by seizing the pre-holiday consumption peak.

Second, given the strong market expectation of a post-holiday consumption off-season and a decline in hog prices, enterprises are opting for early slaughter and reduced slaughter weights to avoid potential losses from further price drops later.

Third, by reducing slaughter weights, the volume of large hogs transported out of regions is decreased, alleviating regional supply-demand imbalances that could be exacerbated by the "south-to-north hog transfer" and preventing further declines in local hog prices due to external supply shocks.

(II) Reactive Weight Reduction: Complying with Policies and Aligning with Industry Consensus

The core objective is to implement the national policy for regulating hog industry slaughter weights. By reducing slaughter weights, the meat yield per hog is lowered, optimizing the market structure from the supply side, alleviating current supply pressures, and helping the industry resume balance.

Overall, for the remaining pre-holiday period, the supply pressure from weight-reduction slaughter will persist. Coupled with the fact that the pre-holiday stockpiling is nearing its end and consumption support is weakening, hog prices are expected to remain under pressure, fluctuating below Yuan 12/kg.

II. During the Chinese New Year: Slaughterhouse Support Likely to Drive a Short-Term Price Increase

Based on current market projections, some leading slaughtering enterprises may only close for one day during the Chinese New Year, allowing slaughtering capacity to remain operational. Moreover, these slaughtering entities are likely to source hogs primarily from their own integrated systems and are not expected to engage in large-scale external purchases.

In this context, overall willingness to sell among farming enterprises is anticipated to temporarily decrease during the holiday period. The procurement and slaughtering pace of these operating slaughtering entities could potentially drive short-term hog prices upward, which may subsequently translate into higher pork carcass prices.

It is important to clarify that the projected temporary increase in hog and pork carcass prices is merely a market expectation and not a certainty. Even if such an increase occurs, it is unlikely to stem from a substantial rise in terminal consumer demand.

Instead, it would primarily result from the slaughtering entities that remain operational during the holiday and rely mainly on their own hog supply. Given the anticipated post-holiday supply pressures, any temporary price increase is expected to be short-lived, likely limited to holiday-period fluctuations rather than forming a sustained upward trend.

III. Post-Holiday to Lantern Festival: Widening Standard-Overweight Price Gap, Mild Secondary Fattening Entry to Provide Weak Support

The current concentrated weight-reduction slaughter by farming enterprises will directly impact the post-holiday weight structure. It is anticipated that between the post-holiday period and the Lantern Festival, there will be a temporary shortage of 140–150 kg overweight hogs, leading to a significant widening of the price gap between standard and overweight hogs. This wider gap is expected to attract some secondary fattening entities, encouraging them to enter the market for restocking.

However, it is important to note that market expectations for a mid-term decline in hog prices after the Chinese New Year remain strong. Secondary fattening entities are relatively cautious about entering the market, and the scale of their participation is unlikely to become concentrated. They may only provide limited support to the low prices but are unlikely to drive a sustained rebound in hog prices. According to industry research feedback, Yuan 10.4 /kg may serve as a key price threshold for secondary fattening entities to consider entering the market. Once prices fall below this level, their willingness to enter the market is expected to increase significantly.

IV. Market Outlook for March-April: Continued Pressure from Weight Reduction, Risk of Hog Prices Falling Below Previous Lows

From a medium-term perspective, the hog market in March and April will still face significant supply pressure, prompting the weight-reduction slaughter among large-scale farming enterprises to avoid further price cut. Based on Mysteel's survey, most large-scale farming enterprises have clearly stated that they will continue to implement weight-reduction slaughter operations after the Chinese New Year, making it difficult to fundamentally alleviate the oversupply situation.

Additionally, March and April fall within the post-holiday consumption off-season, with weak recovery in terminal demand. The outlook for hog prices remains unfavorable, and there is a possibility of prices falling below previous lows. It is anticipated that the average monthly hog price during this period may fluctuate around Yuan 11/kg, with an expected trading range of Yuan 10.2-11.6/kg. Overall, the market is likely to exhibit a weak and volatile trend.

Written by Stacy Chen, chenyijuan@mysteel.com